The Country 08/07/26: Emma Higgins talks to Hamish McKay

Rabobank senior agricultural analyst discusses the sharp fall in Global Dairy Trade prices and what it says about global milk supply. Plus, European heatwave impacts, New Zealand's record milk production and outlook for dairy farm margins.

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Right, OKAYGDT overnight and some well some figures that we
sort of haven't been used to seeing for a while.
So we're joined by a senior agricultural analysts for Rabobank,
Emma Higgins. Emma, welcome on to the show.

Speaker 2 (00:16):
Hey, Haimo, how are you going?

Speaker 1 (00:17):
Yeah? Great, thank you. Hey. GDT down four point nine
percent and the biggest fall in two years. What can
we take from this?

Speaker 2 (00:27):
I think, Hamish, it was quite the reality check auction
for derry markets because what the GDT forlt US is
effectively that there's plenty of milk around globally and prices
have responded accordingly. And as you say, with the GDT
index trapping by almost five percent, a significant decline and
the largest that we're seen in a couple of years,

(00:49):
it certainly is speaking to those fundamentals when it comes
to abundance supply outweighing demand, and it's kind of a
core message that we've been talking about for a while now.

Speaker 1 (01:00):
Yes, so that's been bubbling under for a while, right,
So how long do you think the supply at these
levels is likely to continue?

Speaker 2 (01:11):
Well, it's an interesting question because we have just recently
reviewed our expectations when it comes to the Big seven
milk producing region, so that's New Zealand, it's Australia, it's
also our friends in the Northern Hemisphere including Europe and
the US and then a couple from South America as well.
And it's quite interesting because we think that milk supply

(01:32):
is likely to slow down from quarter three this year
if we cumulatively look at those Big seven regions as
a whole. But Hamish what's been really interesting is that
we've been seeing it here in the headlines here in
New Zealand. On the other side of the world, we've
got a massive heat wave taking place, particularly in core
parts of Europe, and we're starting to hear reports of

(01:54):
heat stress coming through impacts on production when it comes
to grass and other fodder. And so what's going to
be really interesting is I think we're going to see
that milk supply data starts tightening up quite quickly in
some of those European regions in the coming weeks.

Speaker 1 (02:12):
So I guess I mean, is distressing as it is
for them in terms of New Zealand's competitiveness and demand
for our product, then that's a positive and we shouldn't
get too overly concerned by this big drop overnight. Yeah.

Speaker 2 (02:28):
Look, I think what we're seeing is a reflection of
we've talked about the global supply picture. Here in New Zealand,
we have also contributed to that. We've just ended the
twenty five to twenty six season. We hit a new
record when it comes to milk supply and we've busted
across that threshold or that marker of two billion kilograms

(02:49):
of milk solids. So New Zealand's had a part. And
while we are moving into that production or hiatus now,
what tends to happen is we start to see increasing
volumes starting to be at it onto the GDT and
that's also another part of the picture. So what we've
got now is an interesting mix and to answer your question,

(03:10):
will be we think supportive by the end of the
year as we do start to see that milk production
data tighten up. While we wouldn't wish ill on anyone
in the DNA farming industry, obviously, it could be quite
helpful for prices here in New Zealand by the end
of the year.

Speaker 1 (03:26):
We're talking to Emma Higgins, a senior agricultural analyst for Rabobank.
The one thing that I feel as an observer of
the primary sector of the ag sector, EMMA, is that
there is a good level of confidence, not a level
of cockiness, but when we think about things like this

(03:46):
supply situation that you talk about from quarter three onwards,
and you know, if we look at the red meat industry,
the demand there, there is room to be okay with
the banking or bit of longevity. You know, It's not
like we feel like we're in the middle of something
that can just a graph that can go up and
down at a rated knots. There is some consistency there,

(04:08):
I guess, is what I'm trying to say in a
long worded kind of way.

Speaker 2 (04:12):
Yeah, for sure. I mean we've seen you know, a
couple of seasons now where milk prizes have been you know,
either good to really great. We have also seen our
friends in animal protein space also have their schedule press
refuting some good demand as well. And so it is
broadly speaking, you know, quite a positive environment out there

(04:33):
and the farming scene. And I think the challenge is
hamish really that while revenue is one side of the equation,
on the other side, we've got the costs and I
think probably that's where the element of caution is coming in,
because if I have to kind of rub off that
crystal ball, I think we're probably going to see a
little bit of pressure coming through for the farm gate

(04:53):
milk price potentially over the next you know or so,
as we do start to see these strong volumes from
Music Island being added onto the GDT potentially, and that
brings uption around cost and margin right because unfortunately the
impacts of the straight up forms is certainly still lingering
here in New Zealand. And while it's great that we've

(05:14):
seen the boards when it comes to diesel moving direction downwards,
we're probably still yet to feel the full effects from
the beginning of this year coming through broadly in terms
of the costs based and certainly in that fertilizer space
as well. So the margin piece is the real question.
I think that all eyes are on right now for

(05:36):
the twenty six to twenty season season. We do think
it's going to be profitable, but I think the biggest
takeaway is that it's not going to be smooth sailing
this season.

Speaker 1 (05:44):
Great, there we go, Amma, I hope you've got anything
planned for the shorter week or you know flat.

Speaker 2 (05:48):
Out well it's school holidays famous, so we're in survival mode. Yeah,
but I am looking forward to having an extra day
off to enjoy it in peace.

Speaker 1 (05:58):
I remember those days well, gat stuff em. Thank you
very much for joining us. There we go, that is, yeah,
thank you. Imhigan, Senior agricultural Analyst with Raba Bank